Post navigation

When (and why) should an energy subsidy end?

A German-made 900kWh PowerWind56 wind turbine dominates the summit of Mount Institute in Hawley, Mass. It provides, says a ski industry website, 100 percent of the electricity needs of Berkshire East. That’s the ski area, formerly known as Thunder Mountain, at which I learned to ski. From the valley floor, the brilliant white blades seem to lazily rotate at up to 28 revolutions per minute. But that’s visually misleading: When the wind blows sufficiently atop the 1,538-foot peak, the tips of the 91-foot blades slash through the air at 175 mph.

About eight miles northwest of the Berkshire East wind turbine lie the remnants of the Yankee Rowe Nuclear Power Station. That’s New England’s first commercial nuclear power plant, constructed in 1960 for less than $50 million. During the years I reported on the utility industry in the Northeast, I toured the 185-megawatt plant many times. It served electricity customers for 31 years until it was shut down (“decommissioned” is the industry’s preferred argot) in February 1992 because of embrittlement — the result of three decades’ bombardment by sub-atomic neurons of its 8-inch-thick steel shell that houses the reactor’s core.

Neither Berkshire East’s wind turbine nor Yankee Rowe represent full cost acceptance by their respective industries. Both represent generous government subsidy, albeit on different scales. Both impose external costs, some economically intangible yet psychologically tangible, beyond their physical structures. Both suffer from an American governmental myopia that has failed to produce a coherent energy policy since World War II. And both technologies cost utility ratepayers or taxpayers a boatload of money.

Saving a ski area

Berkshire East has a financially challenged past. It is a family business bought by Roy Schaefer nearly four decades ago — a span in which nearly half of American ski areas folded, largely due to rising energy costs. Mount Institute is a minor peak among the Berkshires in western Massachusetts. Snowfall there varies unpredictably from year to year, and mild temperatures do not always permit consistent snowmaking. Move the mountain 100 miles north into Vermont, raise it another 500 feet, and Berkshire East would make a ton of money.

The $3 million wind turbine project has stabilized the ski area’s finances. This one turbine for this one business has been a fiscal lifeline.

But this turbine is not the product of an efficient market for energy that fully covers its costs. In 2008, Massachusetts enacted the Green Jobs Act. That act created the Massachusetts Clean Energy Center. In 2009, Gov. Deval Patrick signed another bill that transferred the state’s Renewable Energy Trust Fund, created by the Legislature in 1998, to MassCEC. That fund’s money comes from the ratepayers of investor-owned utilities that have elected to participate in the trust fund. According to MassCEC, ratepayers statewide on average paid 29 cents a month to the trust fund.

MassCEC contributed $440,000 to the Berkshire East turbine project. That money “paid for the turbine’s feasibility study, some design … as well as construction.” Hats off to the Schaefers for getting utility ratepayers who do not benefit directly from this project to pay for part of that turbine project.

Wind energy externalities?

Wind turbines generally present external costs not borne by their owners. Externalities are “costs … not included in consumer utility or gas bills, nor are they paid for by the companies that produce or sell the energy.” For example, do turbines such as Berkshire East’s kill thousands of birds and bats as critics claim? If so, that’s a negative external cost. (It should not be overlooked that externalities can be both positive or negative.)

These include human health problems caused by air pollution from the burning of coal and oil; damage to land from coal mining and to miners from black lung disease; environmental degradation caused by global warming, acid rain, and water pollution; and national security costs, such as protecting foreign sources of oil.

Machines powered by wind avoid many of these external costs but incur their own:

The most commonly discussed impacts on people are acoustic noise and visual intrusion. Visual intrusion of the turbines along with ancillary systems in the landscape and noise are considered as amenity impacts of the technology. Other impacts include indirect pollution from the production of components and construction of the turbine; the collision of birds in flight with turbines and bird behavioral disturbance from blade avoidance …

Is wind energy ‘effective’?

As a source of energy sufficiency, a single turbine tied to one objective — save a ski area — works, albeit with a taxpayer- or ratepayer-provided subsidy. As an industry, it is fair to ask whether wind power has failed to reach a tipping point in the reliable production of energy. In 2011, consumption of wind-generated energy amounted to 1.2 percent of the nation’s total energy consumption, according to Energy Information Administration data.

Is production of wind energy increasing? Yes. According to EIA, U.S. generation of wind power has increased from about 3,000 megawatts in 1997 to about 120,000 MW in 2011.

It’s easy to find supporters who tout global wind energy production of electricity as a rapidly rising percentage of all global electricity. Six years ago, Greenpeace posted an estimate that a third of the world’s population — that’s more than 2 billion people — could be served by wind energy. (Greenpeace estimates are often overly fueled by fervent optimism — or pessimism, depending on the issue.)

An industry group — the Global Wind Energy Council — touts the presumed success of wind energy in several ways, especially in terms of installed capacity. But wind power succeeds or fails on total kilowatt-hours produced.

Wind energy’s ‘issues’

But thus far, two key issues remain. Wind energy produced as a percentage of all U.S. electricity generated — about 2.3 percent — lags behind other sources.

The other issue is taxpayer or ratepayer subsidy. A federal tax credit that makes wind energy competitive is set to expire Dec. 31. That’s worth $1 billion to the wind energy industry. Arguably, it helps keep the industry fiscally afloat.

Development of wind energy technologies, indeed, most alternative energy technologies (solar, geothermal, etc.), has been aided by government support. Purchase of wind energy technologies has been aided by tax credits.

But the wind energy industry in the United States has been buffeted by competition. The booming shale gas industry has driven down the price of natural gas. Wind power, even with a taxpayer subsidy, has difficulty competing on price — even if it can compete on greenhouse-gas emissions. The tax credit is under attack in Congress, and wind energy component manufacturers have been shedding jobs. Nearly 40,000 wind energy jobs have vanished as the energy retrenches in the face of an almost certain loss of the tax credit.

Government has long played a necessary role in nurturing new technologies. The logic? A little seed money may provide economic and social dividends in the long run — new jobs, higher incomes, and increased revenues for the Treasury. Enticing investors when risks of success are difficult to estimate is an appropriate reason for government to offer subsidies to new technological enterprises.

But how long should government underwrite the costs of externalities that an industry cannot cover with its own revenues? Has the wind power industry simply failed to produce quantifiably satisfactory results (and who defines that standard?) or otherwise failed to demonstrate it can stand alone without subsidies? A reading of congressional tea leaves suggests the industry has run out of time to politically and economically validate its technologies. It should have matured by now, critics argue. And a mature industry should have no need of tax breaks or other subsidies, right?

If that’s the case for ending subsidies for wind energy, why isn’t it also the case for ending the same for nuclear power?

Subsidies for the nukes

The nuclear-power industry in the United States is a mature industry. Electricity has been generated commercially by nuclear plants since the mid-1950s as a product of President Eisenhower’s Atoms for Peace program. That’s well more than half a century for industry maturation. Yet the commercial nuclear industry, which provides 20 percent of the electricity Americans consume, does not cover all its external costs. The Union of Concerned Scientists in 2011 identified “more than 30 subsidies [that] have supported every stage of the nuclear fuel cycle, from uranium mining to long-term waste storage. Added together, these subsidies often have exceeded the average market price of the power produced.”

Nuclear power’s most visible and contentious issue may be its inability to deal with more than a half century’s production of radioactive waste. The Nuclear Energy Institute, which bills itself as the “policy organization for the nuclear technologies industry,” says nuclear power is No. 1 in the United States in “emission-free electricity.” It is not: It emits tons of spent fuel, and the cost of finding ways to dispose of it is in large measure borne by the federal government — the taxpayers.

In October the Nuclear Regulatory Commission extended exemptions that allow Yankee Rowe — which has not generated electricity (or revenue) for more than two decades — to continue to store more than 500 spent fuel rod assemblies on site. That’s just one nuclear facility. Consider the radioactive impact from 104 reactors at 65 nuclear plants (and nuclear-powered naval vessels) with no method to permanently deal with spent nuclear fuel.

Each year, American commercial reactors continue to produce 2,000 more metric tons of spent fuel. Right now, more than 55,000 metric tons of spent nuclear fuel and high-level radioactive waste is now stored at more than 121 sites in 39 states. Even now the Nuclear Regulatory Commission permits nuclear plant owners to re-rack spent fuel rod pools to allow increased storage of spent fuel rods.

The continuing cost of such temporary storage, and the nearly $100 billion needed for “research, construction and operation of the geologic repository over a 150 year period” at Yucca Mountain, is a subsidy for the nuclear industry.

Insuring the nukes

Nuclear power plants, in terms of accidents, are (presumably) low-risk, high-consequence facilities. (Just consider Japan’s recent experience and the nightmare of insurance obligations). Thus insurance costs are high. So the federal government, since 1957, has indemnified the industry against insurance payouts above a certain amount. That is a subsidy valued at between $237 million and $3.5 billion a year. Over the decades, the liability limit for commercial nuclear plants has reached about $12 billion. After that, it’s up to Congress to cover additional liability.

During the nuclear industry’s nascency following World War II, such a subsidy was necessary. Investors and utilities could not be expected to undertake the enormous and then-unquantified risks associated with the private, commercial production of energy with nuclear technology. But after six decades of commercial nuclear power generation, why is the taxpayer still on the hook for that insurance liability? (And don’t just lean on the old saw that electricity rates would skyrocket.)

[T]he government remains more involved in commercial nuclear power than in any other industry in the USA. … The US government, through its own national research laboratories and projects at university and industry facilities, is the main source of funding for advanced reactor and fuel cycle research. It also promises to provide incentives for building new plants through loan guarantees and tax credits, although owners have to raise their own capital. [emphasis added]

If Congress intends to end subsidies for alternative energy technologies on the basis of industry maturation without viable production, who defines viable? Is it percentage of all electricity generated? How is that standard articulated? And by whom?

To what extent, if any, will federal regulators and Congress factor in the role of reducing carbon dioxide emissions in assessing what types of electricity generation to subsidize? These subsidies cannot be viewed solely through an economic lens. Cooling off an overheated planet remains a moral imperative for critics of fossil fuel generation. They see alternative energy technologies, such as wind power, as an ethical response to global warming.

Fifty-five thousand tons of spent fuel rods, with no permanent home in sight, suggest nuclear subsidies will continue. But before Congress, presumably with White House “cooperation,” ends any energy subsidy, perhaps they’ll take time out from their internecine bickering to actually produce a coherent national energy policy that reflects all available technologies and considers the viability of energy technologies in light of fossil fuel emissions decimating the global climate.

Meanwhile, the lights will stay on at Berkshire East, thanks to its subsidized turbine. And Yankee Rowe will continue to monitor and keep secure its dry casks of radioactive waste — thanks to ratepayer or taxpayer subsidy.

3 comments on “When (and why) should an energy subsidy end?”

I will leave the debate over some of the “subsidies” you bring up for others, but there is one major issue I must take issue with – you state the cost of spent nuclear fuel storage is a cost borne by taxpayers (i.e., a subsidy). This is most explicitly not true.

First, the cost of on-site storage is explicitly paid for by the generating utilities (i.e., under the law, this is their obligation) – not the federal government. Second, per the Nuclear Waste Policy Act, nuclear operators have been required to pay a fee of 1 mil/kWh of nuclear electricity generated (i.e., $1/MWh) to cover the costs of geologic disposal. (Per the NWPA, the federal government assumed the responsibility for permanent geologic disposal – in 1987, this was amended to select the Yucca Mountain site.)

In this time, the federal government has collected nearly $30 billion (including accumulated interest) from the utilities to cover the costs of Yucca, with about $8 billion being spent in site characterization. This most certainly does not look like a subsidy in the conventional sense.

One can argue whether the nuclear waste fee is sufficient to cover future costs – at present, the waste fund accumulates about $750 million per year, and will continue to do so as long as the reactor fleet operates. One could likewise argue with your characterization of “no permanent solution” – geologic disposal, by its very nature, is designed to be a “permanent” solution, namely by placing spent fuel in long-term isolation from humans and the environment. And this is not the only waste disposition strategy available – other strategies, like reprocessing to separate out shorter-lived fission products from still-useful actinides can both substantially reduce waste volume and the overall long-term radioactivity (i.e., the actinides, like Pu and other fissionable heavy metals, are the majority of the “long tail” of radioactivity in spent fuel – nearly all of the rest is gone after around 300 years). However, I would also point out that it was political decisions by the federal government in the 1970s that ended U.S. reprocessing efforts being undertaken by private industry – and thus left the federal government in the role of assuming responsibility for spent fuel disposal.

Overall though, the fact that the nuclear industry is responsible for paying its own way with regards to spent fuel disposal significantly undercuts the argument that this constitutes a “subsidy” in any form.

Meanwhile, what other energy sector requires that hazardous wastes be so methodically isolated from humankind until the end of time? Certainly coal ash has toxic heavy metals (lead and mercury) which never become less toxic, as do older generations of photovoltaic cells. I don’t say this to diminish the challenge in responsibly managing nuclear waste, but rather to point out that this is a more universal problem – the only difference is that nuclear is the only sector actually held to account for this negative externality, including paying for the actual costs of permanent disposal.

You miss some of the key supports for renewables. One such is priority grid access: the electricity grid operator is often compelled to take renewable power, even when there is a net cost to the grid of cycling fast-response sources. This leads to another couple of subsidies: the grid needs to be considerably more complex to support this actoin and the recent assessment of the German Energy Agency detailed some significant costs for this – not needed unless that additional level of irregular renewable power was being used. The other implicit cost is the backup power, being used less efficiently because it is being moved in response, and (at high wind/solar penetration) being overbuilt and underused to account for very low periods of renewable production.

You go fishing to say something bad about nuclear power, looking for very indirect or non-existent subsidies, and make some basic mistakes, led astray by the partial vision of UCS and others.

Nuclear waste – spent fuel – is collected and safely stored. The Federal government has collected a great deal of money, collected as part of the price of electricity, to undertake its self-appointed task of disposal of this waste product. Far from being a subsidy, this is a shining example of responsible accounting and control of waste products.

Nuclear insurance law is not a subsidy, but a trade. Do I subsidize a car dealer when I give him money? Of course not. So it is with Price-Anderson, but you will never hear of the other side of the bargain from anti-nuclear sources. The Act allows for an accelerated compension for people affected by nuclear incidents, without them needing to demonstrate fault on the operators side. And frankly the insurance levels covered are huge; according to the NRC’s assessment of current defenses (SOARCA), an accident simply wouldn’t have the serious external effects once feared.

Loan guarantees are not a susidy if the appropriate fee is charged for that guarantee. Nuclear power pays that fee; solar and wind do not.